London-listed lithium mine developer Savannah Resources is hard at work to close the market valuation gap that exists between the company and some of its lithium peers, says chairperson Matthew King.

In his annual general meeting speech this week, he stated that the $935-million net present value (NPV) of its Barroso project – set to be Portugal’s pioneering lithium mine – equates to 44p a share, or about ten times the company’s current share price.

King pointed out that the project had been significantly derisked by the recent favourable environmental impact assessment decision.

“Other lithium stocks which have also completed a scoping study on their respective projects trade on an average multiple to their net asset value (NAV) of around 0.3 times. Savannah currently trades at just 0.1 times, so we will be marketing extensively over the coming months to highlight this investment opportunity to market participants,” he said.

As the project moves through later milestones, such as a definitive feasibility study (DFS), Savannah should expect a re-rating in its multiple to the “post-DFS peer group”, noted King. That group is currently trading on an average of 0.5 times, while the lithium producers' average is 0.8 times NAV.

“From the position we are in now with the project and given the commercial interest we are receiving around future offtake and partnership, I firmly believe Savannah can unlock these materially higher valuations over the medium term,” he said.

Savannah has remained in regular contact with potential offtake and strategic partner, with the aim of concluding commercial agreements in 2024, ahead of a final investment decision by late next year or early 2025.

Assuming the decision is positive, Savannah will mobilise to construct the project during 2025 before entering production in mid-2026.

Savannah last week published a new scoping study for Barroso, which will generate more than $900-million in corporate tax and royalties for Portugal.

The study also includes more than $40-million of capital expenditure committed to infrastructure, such as the new bypass road, which is not only important for the project, but also serves the local communities by reducing the project's impact, and in the case of the road, providing a new, high capacity, access route into the area.

In addition, the study inputs also include the €0.5-million a year which Savannah has committed to providing to a new foundation, focused on funding community initiatives, as well as the approximate $100-million in closure costs.

“It is a testament to the economic robustness of the project that whilst incorporating these significant financial commitments, it can still generate strong financial outcomes for shareholders, such as post-tax free cash flow of $1.7-billion, NPV - at an 8% discount rate - of $953-million, an internal rate of return of 77%, and has a payback period of just 1.3 years,” said King.

The study is based on an average spodumene concentrate price of $1 464/t (5.5% Li2O grade) over the life of the project, compared with the current spot price of $3 500/t (6% Li2O grade).